Lease Vs Finance

I’ve been in the auto industry since I was 19 years old. I started as a young salesman and worked my way into upper management at an early age. So far I’ve enjoyed my career as a “used car salesman”, haha. I think everyone would agree it’s been a tough economy for the past few years, the banking industry, the job market, it’s been down right tough on everyone. That being said, it seems over the past year that things have smoothed out a little in the auto industry, and seem to be on the upswing.

One thing that is becoming increasingly more popular, and I believe has had a significant effect on this upswing is leasing. I’d like to share some knowledge with you and offer my experience. I am an advocate for auto leasing; however, I understand it’s not for everyone. So keep an open mind, if it’s not for you than at least you can make that decision with some knowledge in hand as opposed to listening to your uncle, buddy, co-worker, or the “know it all” who in reality knows nothing about the subject.

Lets talk about some obvious benefits. More times than not your payment on your new car will be less on a lease than it will on a finance. Your contract term will be shorter generally 24, 36, 48 months on a lease vs. 60, 66, 72 months even 84 months on a finance. This requires a lot less of a commitment on your part and I recommend not going over a 36 month lease, anything more and it kind of defeats the purpose. So what’s all this mean to you? Less out of your pocket, maybe a nicer car than you could normally afford, or a new car every 2 to 3 years. At the very least a few more options that many people would love to have had, if this had been explained up front and they were given the option.

From my experience people like to trade their cars before they are paid off. Well before they are paid off. The rule of thumb is 42 months on avg for most people. Thats when most people on average like or try to trade out of their car. They had a baby, they need better gas mileage, they want the newest model. What ever the reason many times they are unable to trade out. The problem is that they financed it for 72 months even 84 months and now owe more than what their car is worth. Automatically putting them in a bad position in their new car if the lender will even grant them a loan for more than what the new car is worth. Had they leased their car for 36 months they could have handed the car back at that point and got their new car just as they had hoped. The only difference is they would be in a great position in their new car instead of a bad one.

Lets assume you lease a car. After your 36 month term has matured you decide you’ve enjoyed the car and would like to keep it. What most people fail to realize you can finance the balance for another 36 months for nearly the same payment and at the end of that term the car is yours. You just bought the car and paid it off in a traditional 72 month finance term. The only difference is you had the option half way through to return the car just in case you wanted something different. AND, odds are your payments were probably a little less expensive.

Here are a few things to consider. Mileage. Many people think they drive too many miles to lease a car. Many leases are set up to allow 12,000 miles or 15,000 miles per year. If you drive more miles you can always purchase more miles up front usually for.15 cents per mile. Every mile you go past your mileage allotment you will be charged a fee per mile,.20 cents is the norm. Now there are two ways to look at this. You could be out of pocket.20 cents per mile or you could be out the depreciation of the extra miles and take that hit in your trade value. Seems to me I’d rather take the option of being capped at a.20 cent penalty vs. what an unsettling, unforgiving auto market can do. I’m implying that your car will depreciate regardless of the fact of you leasing it or financing it. A lease can protect you from an unkind market. Aside from just handing the car back or buying it, you can also trade it, or sell it. If the market is in your favor at that point, meaning if your car is worth more than your balance owed you get to keep the proceeds. How about that, none of the risk all of the benefits. For once you have options. There aren’t a lot of differences between a lease or fiance. The sales price can still be negotiated. You can trade in your current car even if you owe money on it. You have the option depending on your situation to put money down or not to. You maintain your car the same way, you put insurance on it, repair it if you damage it. In a nut shell a lease isn’t a bad thing. It’s just a different way to buy a car. As I said before, it may not be your cup of tea, but maybe you have a few things to think about the next time your in the market to buy a car. In closing, remember every situation is different. A lease isn’t always the way to go, but be sure to ask for a comparison between the two. Go with the option that makes the most sense for you.